Business

Will Wall Street buy into this Fort Worth online subprime lender?

Elevate Credit, an online lender to subprime customers, is based in Fort Worth.
Elevate Credit, an online lender to subprime customers, is based in Fort Worth. Elevate Credit

Elevate Credit, a Fort Worth-based online lender that offers short-term loans to financially-strapped consumers who can’t access traditional credit, is making another pitch to Wall Street.

The company, which put off an initial public offering a year ago when the stock market turned down, is now seeking to sell 7.7 million shares for $12 to $14 a share and raise more than $100 million. Proceeds would be used to pay down debt.

Executives have spent the last week presenting road shows to potential institutional investors. While no IPO date has yet been set, the offering is expected to be priced and trading commenced next week.

Elevate is one of a new breed of so-called “fintech” companies, which are using new technologies such data analytics to develop new financial service products.

Our customer is typically deeply frustrated with traditional banks, which have ignored their need for access to credit, fair pricing, and a path to lower rates and better credit.

Ken Rees, CEO, Elevate Credit

Its installment loans and lines of credit, with brand names such as Rise and Elastic, are aimed at so-called non-prime consumers who either have low credit scores or no credit history. Elevate calls this market the “New Middle Class,” a huge market that has grown as wages have stagnated and traditional lenders tightened up after the last financial crisis.

Elevate CEO Ken Rees says non-prime consumers — mostly working Americans who live paycheck to paycheck with little savings — now outnumber traditional prime customers with strong credit scores, numbering as many as 170 million in the U.S. and the United Kingdom. But these customers can only access high-cost and often predatory products such as payday loans and title loans.

“Our customer is typically deeply frustrated with traditional banks, which have ignored their need for access to credit, fair pricing, and a path to lower rates and better credit,” Rees says in a letter with the prospectus, filed with the Securities and Exchange Commission. “Even though non-prime consumers now outnumber prime consumers in the U.S., most fintech investments and innovation have largely focused on providing credit to prime consumers who are already swimming in it.”

Interest rates on Elevate product can start as high as 180 percent (about half the rate of a payday loan), but can decrease to as low as 36 percent as customers make regular payments.

Elevate says it has been growing rapidly, with revenue reaching $580.4 million in 2016, up from $434 million in 2015, and expected to reach $675 million this year. The company is still losing money, recording a net loss of $22.4 million last year, but its adjusted EBITDA — reflecting earnings before interest, taxes and depreciation — reached $60.4 million last year.

Elevate is based in southwest Fort Worth and has about 500 employees. It plans to trade on the New York Stock Exchange under the ticker symbol ELVT.

Steve Kaskovich: 817-390-7773, @stevekasko

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